Weekend Stock Market Outlook

Stock Market Outlook For The Week of
December 9th = Downtrend


20/50 Day Moving Averages: Downtrend
Price & Volume Action: Downtrend
Objective Elliott Wave Analysis: Downtrend


Yikes. Just when things started looking brighter, U.S. equities sold off...hard. One week after the switch to an uptrend, the outlook sours and reverts to a downtrend, with confirmation from all 3 signals.

All the indexes start this week below their 20 day moving averages, sending this signal back to a downtrend. They're all below their 200-day moving averages as well.

Price charts for $SPX,$COMPQ,$INDU,$NYA,$RUT,$VIX,$TNX,$USD,$CRB,$GOLD

2018-12-09 - US Stock Market Averages

In almost a complete 180 from last week, the price/volume signal switches back to a downtrend signal. Last week's losses came on higher trading volume...not the kind of price action that supports an uptrend. Strong fundamental performance didn't provide shelter from the storm either. Lululemon reported Q3 results Thursday, beating top and bottom line estimates and maintaining their future outlook. The result? Opened Friday at $132, closed at $113 and change...down 14% for the week.

OEW switched back to a downtrend. Even Tony commented on the difficulty identifying trends given the current market conditions and gyrations.

The S&P ($SPX) wiped out two trendlines last week; the short term uptrend, and the intermediate downtrend. If you squint and give yourself some wiggle room, it almost looks like the SPX is range-bound between 2810 and 2630. Prices ended the week at 2633.

2018-12-09 - $SPX Technical Analysis - Daily

2018-12-09 - SPX Technical Analysis - Daily

Longer term, 2600 (give or take a couple percentage points) has served as the floor of support most of 2018. If it doesn't hold, look for a new downward price channel to develop. Since the stock markets were closed on Wednesday, we didn't add another week of high volume selling.

2018-12-09 - $SPX Technical Analysis - Weekly

2018-12-09 - SPX Technical Analysis - Weekly

You may have heard about the yield curve inversion last week. Normally, more uncertainty exists over longer time periods, which brings higher risk, which requires higher yield to compensate. An inversion means an expectation of higher risk in the short term.

Yield Curve Examples - 2018-12-09

Yield Curve Examples - 2018-12-09

In this case, the short end of the yield curve (3 and 5 year yields) inverted slightly, meaning the yield on the 3 year was higher than the 5 year. Before you head for the hills, true inversion, the kind that preceded every recession in the past 60 years or so, occurs when the short end (1 year) is higher than the long end (10+ year). Even then, a recession starts anytime from 6 to 24 months after an inversion event. And here's a silver lining. Per The Fat Pitch:

    "SPX normally gains over the next 3 and 9 months after the first 5-3 inversion of the cycle (from Troy Bombardia; note that 1973 was the year of the oil embargo)."

So you've got some time to get things in order. It's pretty typical bear market price action actually, but that means admitting and accepting we're in one. One thing we can all agree on...it's a traders market.

Participate. Protect. Prepare.

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You can check out how well (or poorly) the outlook has performed as a stand-alone, signal generator using past performance estimates:

For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.  Charts provided courtesy of stockcharts.com.